Amazon Keeps Up the Pressure
Maybe you had that nice little electronics store in the early 2000s. Maybe the rise of the Internet was no big deal. Maybe you heard about this Amazon.com (Nasdaq: AMZN) business one day and thought, "Well, no one is going to take them up on that!" Maybe now you sell slacks. Companies from the mom-and-pop variety all the way up to the Best Buys (NYSE: BBY) of the world have been trying to figure out how to deal with the crush of Amazon and other online retailers with low overheads and low prices. According to a recent survey of CFOs, it looks like a lot of companies think they have this problem licked. Interesting.
The results are in
One of the more prevalent problems is that now, with phones and tablets, customer can walk into Best Buy, look at the headphones on sale, and then check those prices instantly online. If Best Buy isn't matching the low price in-store, they'll order it from the online discounter and walk out. This practice has even been made into a verb -- showrooming. Customers treat physical locations like a showroom, see whether the thing they want looks good, and then buy it online instead.
But in a recent survey of CFOs, 88% said that they are no longer worried about showrooming. The solution seems to be largely driven by a renewed focus on customer service. If you get a lot of help, if someone offers to order it for you, if they'll match the online price, customers might just buy in-store, even if it means paying a little more.
Those pesky "other" results
That sounds like a great way to get Amazon off your back, and there's no doubt that it's working for a lot of brands. Then there is a whole host of other brands that probably haven't ever had to deal with being treated like a showroom because they're the only place to go to buy the thing. For instance, The Buckle (NYSE: BKE) and Gap (NYSE: GPS) can't really lose out in the same way that Best Buy can. If I go into Gap and look at the jeans, then go online to comparison-shop, in a worst case scenario for Gap, I buy them online - which is actually a win since the company's online store is cheaper to run.
That distinction goes a little ways toward explaining why Gap's same-store sales increased 4% while Best Buy's fell 3% . Gap has a buffer between it and Amazon that Best Buy will never have. Best Buy's biggest strength, its diversity of products, has become one of its biggest weaknesses. Instead of Best Buy being the exclusive place to get product X, it's just one of the many places to get it.
Why CFOs are still worried
While nine out of 10 CFOs say they're not worried, the one that is worried is really worried, and my guess is that four of the other guys are sweating a bit too. One of the problems that a BDP partner highlighted in the report is that "showrooming is not a fad or something that is just cool to do for the moment and will pass." This is a consumer behavior that's becoming the new normal, and companies that don't change to address the new consumers will get left behind.
While some companies are moving into the holidays with an aggressive mind-set, there's still a long way to go until the problem is solved. For instance, if you buy in-store, Best Buy will now give you the prices posted on its own website -- and point out the lower price -- but it will not honor competitors' online prices. That means those sales could walk right out the door.
As always, it's going to be an interesting holiday sale season, and I think that more than ever these worriless CFOs are going to feel the pinch from Amazon. Until that situation is laid to rest, I'm hesitant to point anyone toward a retailer that doesn't offer significant in-store advantages or sell a brand that doesn't appear in other stores, like Gap or Buckle. To keep an eye on all things Amazon, check out the Fool's special report on the retailer. It's full of great analysis and is updated whenever new information is available. Click here to get your copy today.